After Hamas’ unexpected attack on Israel over the weekend threatened to destabilize the Middle East, which is home to numerous main suppliers of petroleum, fuel, and energy to global consumers as well as a crucial maritime bottleneck, oil prices increased by more than 3%.
Early Asian trading saw West Texas Intermediate trading above $85 per barrel as the war-risk premium returned to the markets.
There is no imminent threat to supply stemming from the most recent events in Israel. Though Tehran has threatened to block the Strait of Hormuz, a crucial shipping route, as the US moves warships to the region, any potential reprisal against Iran amid suspicions that the Islamic Republic was complicit in the assaults would heighten concerns.
According to ANZ Group Holdings Ltd. analysts Brian Martin and Daniel Hynes, the “key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia.” Markets appear to be assuming, at least initially, that the situation’s scope, length, and effects on the price of Oil prices would stay constrained. However, increased volatility is to be expected.
Worries about the global economy and high-interest rates have caused WTI and London’s Brent futures to plunge this month, losing more than $10 a barrel.
After months of healing ties, those who follow the oil market will be looking for any indications of a bigger rupture between Washington and Tehran. Iranian oil exports have increased recently, which may have influenced the worldwide price decline. Additionally, the Islamic State carried out a rare prisoner exchange and unfroze billions of cash from earlier oil sales.
The Biden administration may find it challenging to maintain such a lenient sanctions system, according to RBC Capital Markets analysts including Helima Croft, who wrote a note on the subject. If Israel publicly accuses Iran of wrongdoing, they said.
